Self-employed mortgage guide

Being self-employed doesn't mean you can't get a mortgage. We look at how much you can borrow on self-employed mortgages, how to boost your chances of being accepted and find the best mortgage deals.

Angela Kerr Director, Editor

KEY INFORMATION

Self-employed mortgages explained

• Being self-employed doesn’t mean you can’t get a mortgage, but it may be more difficult. Especially if you have an irregular income or you’re newly self-employed
• Choosing the right lender is key to being accepted for a self-employed mortgage. Different lenders have different lending criteria, so get expert advice from a fee-free mortgage broker on the best lender to apply to.
• You’ll usually need at least 2 years of accounts when applying for a self-employed mortgage. But some lenders will accept less.
• There are steps to boost how much you can borrow on a self-employed mortgage.

What are self-employed mortgages?

If you’re self-employed and apply for a mortgage, this is known as a self-employed mortgage. Although you won’t see products specifically named as ‘self employed mortgages’. Getting a mortgage when you’re self-employed can be more difficult and you’ll have to provide different evidence about your income, read on for more on this.

Understanding self-employed status for mortgages

Each mortgage lender sets its own criteria on how they define self-employed. But you’ll generally be considered self-employed if you own at least 20%-25% of a business, from which you earn your main income. This includes:

• Sole traders: Individuals who run their own businesses and are personally responsible for its debts.
• Contractors: This typically involves providing services or skills to another business for a set or contracted period of time. As a contractor, you could be a sole-trader or run your own limited company. 
• Director or partner of limited company. This means the responsibility for a business is shared between directors / partners / shareholders.

Reasons why being self-employed can make it harder to get a mortgage

Here are some of the common reasons why being self-employed can make it more difficult to get a mortgage:

– If you have an irregular income

Mortgage lenders generally prefer to see a steady level of income. So if your self-employed income has fluctuated in recent years or if you’ve had some time off recently, bringing down your average or typical income, this may limit how much a lender will let you borrow on a mortgage.

– You’re recently self-employed

When you’re self-employed and applying for a mortgage, lenders will usually ask to see two or more years of certified accounts. If you’ve been self-employed for less time, you may find it harder to get a mortgage, especially if you’ve been self-employed for less than one year.

– You choose the wrong lender

Different lenders have different lending criteria. For example, some will limit the size of loans they’ll lend to self-employed mortgage applicants. So don’t just go to your bank. If you’re self-employed, speak to a fee-free mortgage broker who’ll look at your circumstances and match you to the mortgage lender most likely to accept your application.

Get fee free advice from award winning mortgage brokers L&C.  Start the process online or over the phone now

How common are self-employed mortgages?

Lending on self-employed mortgages is set to rise by 67% over the next five years, from £20.9 billion in 2023 to £34.8 billion by 2029, according to specialist lender Together. There are currently around 4.3 million self-employed people in the UK.

Proving your income for self-employed mortgages

When applying, you’ll usually need to provide:

• Certified accounts: You’ll usually need at least two years of accounts when you apply for a self-employed mortgage, although some lenders accept less. Lenders tend to prefer that your accounts have been prepared by an accountant. If they’re not, you may have less choice of lenders to choose from.
• Tax year overviews/ SA302 forms: You’ll usually need at least two years worth of these.
• Evidence of upcoming work: If you’re a contractor lenders may want to see evidence of upcoming contracts. You may be asked for evidence of dividend payments or retained profits if you’re a company director.

This is on top of the usual documents you’ll need to provide for a mortgage such as:

• Bank statements: You’ll typically need three months of statements although some lenders require more. If you’re self-employed you may need to show business bank account statements too.
• Proof of ID and current address. Such as your passport and utility or council tax bills.
• Proof of deposit: You can do this by showing bank account or saving account statements. A gifted deposit from parents needs to be backed up with their bank statement and letter confirming it is a gift.

How lenders decide how much you can borrow on self-employed mortgages

Here are some of the factors that will determine how much you can borrow on a self-employed mortgage:

1. How much is your income

How much you earn is an important factor a lender will take into account. If you’re self-employed, how your earnings will be calculated for mortgage purposes depends on the type of self-employed worker you are.

• Sole trader: Lenders will often look at your net profits over the past two or three years and take the average.
• Limited company director: You’ll usually pay yourself a salary and dividend payments and both will be taken into account by a lender. Be aware that if you choose to retain profits in your business rather than drawing them out, this can cause problems as some lenders don’t include retained profits in their calculations. Speak to a fee-free mortgage broker to find out more.
• Contractor: Lenders may take the average of your income over the last few years. However, some lenders may take an annual figure calculated from your day rate.

2. How much are your outgoings

The lender will also consider your household spending each month, such as your council tax and utility bills, loan or credit cards, car payments, childcare costs, any school fees and insurance. They’ll also take into account your every day expenses such as spending on food, holidays and leisure.

3. How good your credit score is

Just like with any mortgage, when you apply for self-employed mortgages the lender will check your credit history. Read our guide on 11 tips to improve your credit score for a mortgage.

KEY INFORMATION

How to improve your chances of getting a mortgage when self-employed

Ways you can improve your chances of getting a mortgage when self-employed include:

• Getting an accountant: Some lenders require that your accounts have been prepared by an accountant.
• Beware of changing your business model. If you switch from being a sole trader to a limited company, some lenders may consider you a brand new business – even if you’ve been trading for years. But if you do switch business models, you’ll generally have more lenders willing to lend to you once you’ve got at least one year’s trading accounts.
• Limit the amount of expenses you sign off. If you sign off lots of business expenses in the run up to applying, it may make it look like your income is smaller than it is. This could reduce the size of mortgage you’re offered.
• Saving the largest deposit possible: Having a bigger deposit means you’ll have a larger choice of mortgages and potentially access to the best mortgage rates too. You may want to consider a Lifetime ISA. Find out more in our guide How to save for a deposit
• Cut back on spending. Lenders will go through your outgoings when deciding how much to lend to you. So slash your spending in the months before applying for a self-employed mortgage if possible.
• Boost your credit score: When you apply for a mortgage the lender will look into your financial history. The better your credit score, the better your chances of being accepted for a mortgage, plus you may be able to borrow more and at lower rates. Find out more in our guide Tips to improve your credit score for a mortgage.
• Don’t apply for credit shortly before applying for a mortgage. When you apply for credit it leaves a mark on your credit file. If you have these on your file in the months before applying for a mortgage it can make you look desperate for credit.
• Register to vote. This data helps lenders confirm your name and address, so your score will increase as a result.  Be sure to do this before you apply for a mortgage.
• Speak to a mortgage broker: Not only can a mortgage broker shop around for the best mortgage rates, they offer expert advice which can be particularly useful if you’re self-employed.

Self employed mortgage calculator

Use our free mortgage cost calculator to see instantly what your monthly mortgage payments will be for different options to work out what you can afford.

How long do I need to be self-employed for to get a mortgage?

Most lenders require you to have two or three years of certified accounts when considering to lend you a self-employed mortgage in the UK. However, some lenders will accept less.

Get free self-employed mortgage advice from award-winning brokers L&C. Start the process online or over the phone now

Do self-employed people have to pay higher mortgage rates?

• You shouldn’t have to pay higher mortgage rates just because you’re self-employed. If you can provide proof of your income and the lender is satisfied that you can afford the mortgage you should pay the same rate as someone who is in a permanent full-time job.

• However, lenders’ criteria is often stricter if you’re self-employed. And depending on your circumstances, if this means you have access to a smaller pool of lenders you may end up having to pay a higher mortgage rate than if you were in permanent employment.

How to find the best self-employed mortgage deals

Here’s the step-by-step process to finding the best self-employed mortgage deals.

1. Shop around for the best mortgage deals available for you. Speaking to a fee-free mortgage broker is the easiest and quickest way to do this.
2. Gather the documents you need for your application – Your broker will explain what you need.
3. Get your mortgage in principle: This is an indication that a lender could lend you a specified amount, based on details you’ve provided about your income, spending and debts. With mortgage brokers L&C, you can get a personalised Decision in Principle in just a matter of minutes. Find out more in our Mortgage in principle guide.
4. Apply for your mortgage. Read our guide on How to make a successful mortgage application

Get free self-employed mortgage advice from award-winning brokers L&C. Start the process online or over the phone now

Remortgaging when you’re self-employed

• Remortgaging when you’re self-employed works in a similar way.
• But depending on your circumstances it might take a bit longer to find the best mortgage deal so don’t delay.
• If your current mortgage deal ends in the next six months, you can start the remortgage process now and lock in a rate.
• You can then keep it under review in case a better rate comes up before you complete your switch. Read our guide Should I remortgage now?

Which lenders offer self-employed mortgages?

Many mainstream mortgage lenders offer self-employed mortgages although each has its own lending criteria. For example:

• Nationwide self-employed mortgage requirements include self-employed applicants needing a minimum trading period of 2 years. For sole traders and partnerships, you’ll need to provide the last 2 years’ income and the lender will use the lower of the most recent year’s net profit (or share of), or the average of the last 2 years’ net profit (or share of) figures.
• Halifax self employed mortgage requirements. While the lender asks for evidence of the last 2 years Tax Calculations and corresponding Tax Year Overviews or Last 2 years finalised accounts, they also say ‘Where the customer has been trading for less than 2 years, a minimum of 1 year’s accounts will be considered. Latest 3 months’ bank statements for the account which is used for business purposes may be required.’
• NatWest self-employed mortgage requirements For sole traders or partnerships, NatWest’s lending criteria includes evidence of 2 years SA100 (Tax Return) OR Full and Finalised accounts, 2 years SA302 Tax Calculation and Tax year overview, 3 months Personal Bank statements and 3 months Business Bank statements, if applicable.

How to find a self-employed mortgage advisor

If you’re looking for a self-employed mortgage advisor, speak to our award-winning partners L&C. You’ll get expert advice, plus L&C are fee-free so it won’t cost you a penny.

Frequently Asked Questions